The Flat Tax for Equality & Justice

One learns the strangest things about friends' politics on Facebook. The other day, I had a friend post that we should have a flat tax for equality and justice.

So, a single mom making $20,000 would pay $4,000 in taxes and George Soros making $2 billion in income would pay $400 million. (And yes, Soros and other hedge funds managers have made as much as $2 billion in a year. This is not hyperbole.) That seems perfectly equal. And fair. I'm sure that they both can "afford" the 20% tax equally. And I guess a flat tax, to keep it simple, would make no allowances for medical expenses, home mortgage deductions, charity, dependent children, education expenses or other deductions.

Next, I think that we should be equal and justice for military service. We should no longer rely on a primarily male population of soldiers, able-bodied kids who -generally speaking - aren't as interested in or able for university and the careers that follow. We should simply draft randomly from the population, 16 to 60, male or female. And, of course, for equality we would not make any allowances for medical waivers, student deferments, pregnancy, or people who had better employment prospects elsewhere (whether to serve out a term as president, say, or work as CEO).

I like it. Equality for all makes policy so simple.

What's Proven is Obsolete - or Why the Obama and Romney Policies Will Create More Debt Than Jobs

If you wait for Apple stock to climb to $600 from $6 before you buy it, if you wait for it to prove itself, you'll lose out. I'm beginning to suspect that economic policies are similar. What is proven by history may well be obsolete today. Romney and Obama offer proven policies. The problem is, they were proven in earlier stages of economic development.

Romney argues for cuts to capital gains tax.The theory behind this is that we don't have enough capital and any policies that created more capital would result in more jobs and wealth. Maybe. But that's hard to reconcile with a few facts. For one thing, banks and corporations sit atop trillions in cash. Would even more capital result in more investment and more jobs? Further, investment itself seems different. An economy of the 1910s and 1920s in which the most exciting new companies are car companies that require massive investments of capital seems very different from an economy of the 2000s and 2010s in which you can start a company with just a laptop. Cuts in capital gains tax will reduce government revenues. I'm not  sure it'll spur economic growth.

Obama's emphasis on education seems to offer a more plausible solution for job growth. But that, too, is a proven strategy that today seems more effective at creating debt than jobs. In 1900, fewer than 5% of 14 to 17 year olds were formally enrolled in education. In this environment, spending more on education seemed to obviously create growth in incomes and jobs. And in fact real incomes rose about 6X during the 20th century. But by 2000, fewer than 5% of 14 to 17 year olds were not formally enrolled in education. In this environment, it's less clear that spending even more on education will get us similar gains. Education seems like a great investment but like capital, it might no longer be what really limits. 

For me, the really fascinating and profitable question is, What sorts of policies will make communities more entrepreneurial? And by communities I don't just mean cities, states, and countries. I think that this is a question that corporations need to ask of themselves as well. 

Thomas Edison didn't just invent the light bulb and phonograph and movie projector and 1090 other things. He "invented" the first Industrial R&D Lab in the US. He hired people to invent things. Before that, inventors were just on their own and nothing was done to regularly encourage new products and product enhancements. After Edison, we got intentional about technological and product invention. Now companies regularly turn out new products.

Around 1900, communities around the US were opening an average of one new high school per day. Universities, too, were proliferating at this time. Learning that knowledge work was key to success in this new economy, we got intentional about creating knowledge workers, no longer leaving education to just the wealthy and the inquisitive few.

What if communities became as intentional about creating new entrepreneurs? What if their emergence was no longer left to chance, to individual initiative, to people who felt like overcoming obstacles and indifference? What if instead a growing percentage of people were expected - just as R&D people or students today - to do this as their job?

I just don't think that the question is, How do we encourage more capital investment or more graduates? I'm not convinced that either limits our progress for now. If we had a dramatic gain in either, I'm doubtful that things would dramatically change. But if we had a dramatic gain in the number of entrepreneurs - or even in the portion of employees who were given a more entrepreneurial role - I think that we'd see huge gains in jobs created, incomes, and wealth. It seems to me like the right question, even if we have less "proof" that it will work as well as earlier policies that helped to create more capital and knowledge workers.

Oh, and one last assertion. Higher levels of entrepreneurship will generate higher returns to capital and higher wages for knowledge workers. There is still plenty of gain to be had for those two. It just isn't obvious that they still lead the economic development parade.

--------------
My friend Norman sent me the link to this article by Clayton Christensen in which he argues that capital doesn't matter nearly so much as we make it out to matter:

http://mobile.nytimes.com/2012/11/04/business/a-capitalists-dilemma-whoever-becomes-president.xml?f=111

Protecting Religious Extremism

Today I heard Jimmy Carter talking about the importance of religious moderates in Egypt. I don't think they are.

It seems to me that the lesson of the West is not that it is important to have religious moderates. Rather, the lesson is that it is important that religion be a private conviction, not a basis for social policy.

As soon as you say that we have to care for the poor or ban abortion because of God's will, you're making religion public. If you can, instead, make an argument for both or either based on appeals to reason and conscience, then you have the basis for public policy. 

The US is getting more and more immigrants whose religion is not a product of the Protestant Revolution. Biden and Ryan are both Catholic, part of a growing number of Catholics in this country. A growing number of Muslims live here as well. I sometimes wonder if these - or even some of our more traditional Protestants - really understand our approach to religion.

A person can have what seems like extreme religious views and still be a part of this great country. Atheists seem extreme to believers and people who believe that God daily intervenes in life seem extreme to people who see God as a benevolent law-giver. There is not even a good way to judge extremism in the realm of religion.

But no one can have the conviction that their religious convictions ought to be the basis for any laws in this country. Your belief in things unseen cannot be the thing that governs the affairs of men that are seen. 

Religious freedom cuts both ways. You are free to have your own religious beliefs and I am free from those same religious beliefs. The Protestant Revolution made religion a private rather than public matter. Whether that means that one's religion is moderate is also a private matter. 

Obama's Mis-Prediction - Or the Inevitability of Sequestration

Obama casually commented in the last debate that automatic spending cuts and tax hikes won't kick in next year. He thinks that DC will avoid the sequestration. I don't believe him.

Elected officials can't win votes if they propose tax hikes - unless it is for the very rich.

Elected officials can't win votes if they propose spending cuts - unless it is for that elusive line-item labeled "waste and fraud."

So, you can tax the rich and you can cut waste. Anything else is off-limits. But as Clinton reminded us, the mysterious powers of arithmetic extend even to Congress and if you can't cut spending or hike taxes, there is no way to close a trillion dollar deficit gap.

So, what's a politician to do? Let automatic provisions kick in.

Best-case, the sequestration will become the new baseline against which all future cuts and hikes will be measured. It will be adopted as the basis for Republicans claiming that they didn't raise taxes and  Democrats claiming that they didn't cut programs.

I simply don't see politicians leaving their fingerprints on any tax hikes or program cuts in any other way. And there is no other way to begin to close this record gap.

Romney's Support in France

Cultural differences ...

Cody and Ron Have a Conversation About an Entrepreneurial Economy

Listen to the interview here.

Cody McKibben is a metaprenuer, a term that deserves explanation.

Cody's generation - the group that's hit the job  market in the last decade - have had to be creative. From 2000 to 2009, the American economy created --- oops -- I mean destroyed an average of 120,000 jobs a year. Fortunately, this generation failed by old strategies is demonstrating an ability to create new ones. Cody's solution was not just to become an entrepreneur. After working for the Dean of the Business School, he evolved into a position helping entrepreneurs, hence the designation of metapreneur (one who creates entrepreneurs who, in turn, create businesses). 

Cody has moved from Northern California to Asia and has founded the Digital Nomad Academy and sometimes collaborates with Dan Andrews at Tropical MBA to inspire, educate, and coach a growing group of current and aspiring entrepreneurs. 

This week Cody invited me to join him in a conversation about my book, The Fourth Economy. If you'd like to hear the conversation about what a new economy will mean for education, corporations, and our ideas about who we are and who we can be, you can listen in on our conversation here.

(This is the table referred to during our conversation.)

How Revolution Is Different From Debates

The Irrational,Tribal Voter

I live in California. Pollsters are 100% confident that Obama will win all of our electoral votes.

My daughter lives in Texas. Pollsters are 100% confident that Romney will win all of their electoral votes.

So while it is irrational, I closely follow the presidential election and know that many of my friends in these states do as well.

It's a tribal thing, apparently. My rooting for the Giants to win won't change their odds in the playoffs. Yet I pay attention. I root for them to win. I want the Giants to win.

So partly we vote and cheer for "our team" politically because we think our vote will make a difference. Probably more importantly, we do it because it makes us feel - for whatever misguided reasons - like we're not alone in our worldview. We're together in the stadium and we can hear others chanting the same slogans.

Biden on Abortion

Biden's response on abortion in tonight's debate was to the point. He essentially said that personally he believes the Catholic Church's teaching that life begins at conception yet he would not enforce that belief on other people. He made clear that this is a personal, religious belief and that he felt he had no right to impose that on anyone else.

Still, I would have liked to hear an answer like this. "Asking men what their personal beliefs are about abortion is liking asking women what their personal beliefs are on circumcision or vasectomies. Men's personal beliefs aren't particularly relevant. It's only their policy beliefs that are relevant and my policy is that women's personal beliefs should be what matters. Abortion should be a woman's personal choice."

-------------
Biden's response from the transcript:

BIDEN: My religion defines who I am, and I've been a practicing Catholic my whole life. ... With regard to -- with regard to abortion, I accept my church's position on abortion as a -- what we call a (inaudible) doctrine. Life begins at conception in the church's judgment. I accept it in my personal life.

But I refuse to impose it on equally devout Christians and Muslims and Jews, and I just refuse to impose that on others, unlike my friend here, the -- the congressman. I -- I do not believe that we have a right to tell other people that -- women they can't control their body. It's a decision between them and their doctor. In my view and the Supreme Court, I'm not going to interfere with that.

Questions I'd Like to Hear at Tonight's VP Debate

In tonight's debate, Paul Ryan will try to make Joe Biden look like an effete manicurist in his approach to fiscal policy, an insider making token trims to bloated budgets. By contrast, Biden will try to make Ryan look like a madman of a surgeon, wielding a chain saw and ready to amputate programs like Medicare and Social Security. Whoever wins that battle of the image distortion will likely be declared the winner of the debate. And possibly - but far less likely - the winner of next month's election.

The debate is Biden's to win or lose. If Ryan makes him look evasive or stupid about real budget conundrums and numbers, Biden could lose. If Biden says something provocative but disturbing, then he loses. But of the four candidates - Obama and Romney, Ryan and Biden - Biden is the most personable, the most likely to demonstrate an instinct for how people respond to policy. He could easily make Ryan look like an out-of-touch policy wonk who doesn't understand or appreciate the concerns of the average American. For this reason, Biden could win the debate.

Both tonight's VP debate and next week's presidential debate will cover foreign policy. Given what is going on in the Middle East - assassinations, civil wars, and maltreatment of minority groups - it would be interesting to ask the candidates how they would intervened in the American Civil War and Indian wars during the 1860s. And then asking how that parallels conditions in the Middle East.

For instance:

1. Would you have advised Lincoln to send troops to stop the Confederates from succession? How would you justify killing so many Americans to protect the union?
- How do you judge whether revolutionaries in places like Syria, Libya or even Iraq and Afghanistan are more like Americans fighting the British in 1776 or Confederates fighting the Union in 1861?

2. How would you have dealt with American Indian tribes? Do you think they were treated fairly?
- Do you think that Palestinians should be put on reservations, assimilated, or given their own land?

Employed Mentors' Program

File under "well, it's worth considering even if it isn't fully thought through as yet."

Unemployment is usually between 5% to 10%. That means that for every one person who is unemployed, there are 9 to 19 people who are employed. Why not a mentor program that gives each unemployed person access to the 9 to 19 who are employed? It could be both value and prod to the unemployed and a form of service tax on the employed.

There are a lot of things that could be done with this model, but essentially you'd raise the probability that someone out of the labor market still had connections to it. The employed mentors (EMs?) could offer interview tips, share job leads, suggest training programs, give feedback about where to apply, etc. Mentor teams could track their numbers against national averages, looking at numbers like time to get their apprentice into a job, ratio of pay in last job to next job, etc.

Particularly for the long-term unemployed, it is easy to become disconnected from prevailing norms, trends, and even the hope that comes from talking to people who show an interest. A program like this might help.

How an Entrepreneurial Economy Has Made Labor Market Reporting Obsolete

Each month the government reports job growth and unemployment rates. Given they don't have real-time data on all 300 million people in the US, they take two surveys of a select number of households and businesses. The picture from those two is consistently different, with the household surveys regularly reporting more jobs created than what is reflected on business payrolls, as reported by Matthew Yglesias at Slate.

For September, the survey based on business payroll reported an increase of 114,000 jobs. The increase based on household surveys was up by a startling 873,000. From last September, payroll surveys show an increase of 1.8 million jobs while the household surveys show an increase of 2.9 million jobs. Those are huge discrepancies.

Meanwhile, the New York Times reported on how startups now require fewer employees in the article "When Job Creation Engines Stop at Just One," by Catherine Rampell.

For more than a decade, start-ups have been getting leaner and meaner. In 1999, the typical new business had 7.7 employees; its counterpart in 2011 had 4.7, according to an analysis of Labor Department data by E. J. Reedy at the Kauffman Foundation, a research organization focused on entrepreneurship.

Rampell goes on to report how entrepreneurs are more reliant on contractors than ever before, contracting employees for specific tasks or projects rather than hiring them and then assigning tasks. As needs change through the life of the company, it is easier for entrepreneurs to assign more or less work to certain kinds of contractors than it is to lay-off and hire different kinds of employees.

This aligns with what I've seen in my 15 years of working with project teams inside of Fortune 100 companies and startups alike. When I began, a typical project might outsource about 10% of its tasks to contractors or vendors who weren't actually employees of the firm. Today, it is not unusual to encounter projects in which 40% or more of the work is done by people outside the firm. An outside vendor might manage clinical trials for a pharmaceutical company or create custom parts for the development of a new device. Based on my experience, I would believe claims that outsourcing on product development has tripled from about 10% to 30% in the last decade. It could even be more.

When a job is outsourced from inside the company to outside, a few things can happen. One, that job can simply be reported on the payroll of a new American company. Two, it can now be reported on the payroll of a foreign company. Three, it can now be reported on the payroll of a less established company, perhaps even assigned directly to an independent contractor who doesn't have a payroll..

If the job goes to a new American company, it will be captured in both the household surveys and the payroll surveys of businesses. If the job goes to a foreign company, it doesn't appear in either survey and unemployment goes up. If the job goes to an independent contractor or just-established company, it might show up in the household survey but not in the payroll survey. As more jobs are outsourced, unemployment would go up and the gap between jobs reported on payroll surveys and household surveys would grow.

It seems clear that the modern economy is becoming more entrepreneurial. One way that shows up is that the ratio of business opportunities to employment opportunities is going up. It may be easier than ever to find projects or tasks even as it is more difficult than ever to find traditional employment.

This explanation of the gap between households and payroll surveys is just a theory, but it seems to accord with my experience with large, established companies and startups. It seems to accord with what Catherine Rampell is reporting as well. Further, if you add to these situations the many internet based business that might be run out of homes and off of platforms like eBay, as mentioned by Matthew Yglesias, it might just fully account for the fact that households have more jobs to report than do the traditional companies that government survey takers may contact.

If there is truth behind this, there are a lot of policy implications, most beyond the scope of this post. It's worth mentioning just a couple. Universal healthcare that lowers risk for contractors and entrepreneurs alike makes more sense than health insurance provided by an employer, for one thing. Even more importantly, we need to change our education and job training programs to prepare people to become entrepreneurs, contractors, and independent agents rather as well as employees.

It might be that the techniques perfected to monitor work in an economy of traditional employment just miss too much of what is going on in an entrepreneurial rather than an information economy.  And it might just be that the economy is doing better than we thought, even if it less often promises the apparent stability of a "real job."

Our models, from schooling to labor market reporting, should be updated. The way we depict and prepare for the economy would ideally be as dynamic and responsive as the economy. For now, that doesn't seem to be the case.

It's Beginning to Look Like Recovery

Home prices were up 4.6% in August, "the largest year-over-year gain in six years."

Automobile sales in September are up 11% from last year.

Unemployment is down from 9% a year ago to 7.8%.

The S&P 500 is up 29% from a year ago.

All of which may explain why consumer confidence is at a four year high in spite of a fairly lackluster GDP growth of 1.3 in the April-June quarter.

But of course it might all just be a conspiracy.

Does This Recession Make My Deficit Look Big?

Last night Romney made a number of statements that Obama seemed to ignore. For instance, he clarified that his tax plan will lower taxes but not actually lower revenue. That alone is worth questioning because if he's done it, he's done the political equivalent of creating the perpetual motion machine. "People pay lower taxes on this end and exactly the same revenue comes out on the other end!"

The comment he made about the deficits of the last four years seemed to offer Obama the easiest pitch to hit, but it wasn't that Obama whiffed at the pitch. Instead, he didn't even swing at it.

Romney criticized Obama for the size of the deficits since he took office, asking why he had done nothing to implement some variant of the Bowles-Simpson Deficit Reduction Plan during his 4 years. I've heard this criticism before and while I share concern at the size of the deficit I never understand the criticism. Romney provided Obama with the perfect opportunity for all of us to better understand what he would have done differently and how silly is the criticism.

[verbatim transcript]

MR. ROMNEY: I have my own plan. It’s not the same as Simpson- Bowles. But in my view, the president should have grabbed it. If you wanted to make some adjustments to it, take it, go to Congress, fight for it.

PRESIDENT OBAMA: That’s what we’ve done, made some adjustments to it; and we’re putting it forward before Congress right now, a $4 trillion plan, (a balanced ?) --

MR. ROMNEY: But you’ve been -- but you’ve been president four years. You’ve been president four years. You said you’d cut the deficit in half. It’s now four years later. We still have trillion- dollar deficits.

[blog author's snappy comeback, delivered just 16 hours later]

PRESIDENT OBAMA: I understand that you're unhappy about the size of the deficit. So am I. What I don't understand is what you would have done to make it lower. I'm curious. Had you won the primary in 2008 and then the general election, beaten John McCain and then me to become president, what would you have done differently so that there would have been no deficit?

Would you have raised taxes in the midst of the worst recession in nearly a century? Or maybe slashed government spending by hundreds of billions to leave millions of unemployed and retired without benefits and laid off government workers and government contractors when unemployment was already in the double-digits?

Or would your deficit reduction plan just depend on not having a recession? Because if so, that's something I guess I should have considered.

Quick Observations on the Debate, Round One

(I won't bother to say, "In my opinion." It's a blog. You already know that it's my opinion.)

Romney clearly won. He was clear, positive, and managed to remove the caricature that has characterized his public image in recent months.

Romney sold vaporware. Obama's plan is full of bugs and a clumsy interface and Romney's plan will do everything better. He just hasn't defined it yet. We know he's going to reduce the deficit by growing the economy and cutting programs but we don't know which programs or why the economy will grow faster without a program. If vague works, he could win this.

Big Bird has to be hating Jim Lehrer, who did so little to defend NPR's reputation. Based on just his performance, it wouldn't be obvious why Americans should subsidize public broadcasting. Yet a world where coverage is left to MSNBC and Fox instead of NPR, PBS, and BBC seems like a far lesser world.

Obama was caught flat-footed a number of times. Coming into this debate, I would have said that Romney was far more reliant on platitudes than Obama, who is steeped in reality given he has to do the job daily. And yet based on how they appeared in the debate, Romney was factual and Obama was hand waving.

Romney came prepared to say things. Obama was prepared to answer questions. Little about what Obama said seemed intentional or to reflect a clear statement of what he wanted to do over the next four years.

Mormons live 10 years longer than the average American, and based on Romney, that seems about right: he only looks about 4 years older than Obama, not 14 years older, as he is.

Sadly for Romney, this was a boring debate. He might have won voters had many folks been watching. It was so policy specific that it is hard to imagine the (possibly fictional) undecided, poorly informed voter following the arguments for 90 minutes. 

The coverage of Romney's "surge" will dominant the news media over the next week. If Ryan does well against Biden (and I suspect he will), this will become a very big deal and the media will trumpet Romney's come back. In the end, though, it will probably be like the coverage of Santorum and Gingrich's rise in the polls during the primaries: an exciting (for reporters and talk show hosts) interruption from covering the inevitable.

If Obama & Romney Switched Hair

This unsettling reminder that seemingly inconsequential changes could make a huge difference brought to you by https://twitter.com/shelbywhite/status/253673960846266368

Top Ten Things I'd Like to Hear in Tonight's Debate

1. Asked about why he’s running, candidate pleads the fifth under advice from his attorney.
2. Obama admits that it’s been years since he’s debated and he can’t remember if he gets to poll the audience on tough questions or phone a friend.
3. Romney, unable to control himself, says, “Ask me about job creation. Please. I’ve got a great zinger for that one.”
4. A candidate opens with “My opponent wants to slash Medicare!” When his opponent protests, the candidate crosses Medicare off of his list and then announces, “My opponent wants to slash spending on Social Security.” When the opponent protests again, the candidate crosses social security off the list, and announces, “My opponent wants to slash defense spending!” When the opponents again protests, the candidate crosses defense off the list and shouts, “My opponent wants to raise taxes!” And so on, until he announces, “My opponent wants to dramatically increase the deficit!” When the opponent protests that, the candidate announces, “My opponent is utterly mystified by arithmetic!”
5. The two candidates tell a story about the same guy, Jerome from Flint, MI. They get into a bitter squabble about whose symbolic voter he is until one of the candidates looks down at his notes and says, “Oh! Wait. Jeremy. My guy is Jeremy. Never mind.”
6. One candidate turns to the other and says, “You believe in deregulation, right? Let’s jettison these two-minute response limits and just talk about the issues past the point of sound bites and meaningless platitudes.” When his opponent panics and begins to bluster, the candidate says, "Just kidding!" They laugh and then resume quoting sound bites from their campaign in response to every question.
7. A candidate texts in the middle of the other’s response, the one historic first for the evening.
8. "Oops!"
9. Moderator asks the incredibly awkward question, “What is it you find most attractive about your opponent’s wife?” Even more awkwardly, the candidates answer.
10. Clint Eastwood dramatically appears to close the debate with last question. “You want me to tell your opponent to do what to himself?” It gets even more awkward as the candidates once again answer.

Why We Will Leap Off the Fiscal Cliff (And Why It's Not That Bad)

We're going over the fiscal cliff in January. As painful as it will be, it might be the only way that  Washington will begin deficit reduction.

Federal taxes as a percentage of GDP are the lowest they've been since you started paying taxes, and federal spending as a percentage of GDP is the highest. The result is a trillion dollar deficit and weaning an economy of that mix of tax breaks and stimulus spending is like weaning a junkie from heroin. There is no graceful way to do it.

This massive deficit is simply not sustainable but there is no way that Republicans will agree to raise taxes a single dime and no way that anyone - Republican or Democrat - could propose a trillion dollar spending cut without committing political suicide and gutting long-established programs.

Which brings us to our fiscal cliff, which will automatically cut discretionary spending by about 10% and raise taxes on the typical family by about $3,446. 

For the last few years, taxes as a percentage of GDP have been 15-some percent. From 1960 to 2008, they averaged 18.1%, and ranged from 16.1 to 20.6%. We're at a new low for taxes.

During that same half century, 1960 to 2008, federal spending as a percentage of GDP has averaged 20.2%, ranging from 17.2 to 23.5%. The last few years it's been 24 to 25%. Again, to put it simply, we're at a new high for spending.

It's no mystery that the lowest taxes combined with the highest spending in half a century have created a record deficit. 

Until taxes are sharply increased, Republicans' call for lower taxes makes about as much sense as legislation to protect the unicorn from extinction. However, if spending is slashed and taxes are hiked, the usual arguments out of Washington might actually make sense again. An automatic tax hike might pave the way for reasonable, targeted tax cuts. Automatic spending cuts might make proposals for new spending in target areas a great idea. Falling off the fiscal cliff may not knock sense into the usual debaters but it might re-align their arguments from ridiculous to marginally plausible.

This fiscal cliff is likely to cause another recession. Whether it is mild or severe will have as much to do with Europe and China as our own economy. This brings risk to the economy but it seems as though the graceful exit from fiscal madness is closed for repairs. Let's just hope that the crash at the bottom of the cliff doesn't include a gratuitously spectacular explosion.